Index publishing company Indeks Komoditas Indonesia (IKI) is recommending that the government delay its plan to begin implementing the B40 program in 2021 saying that both the infrastructure and consumers were not yet ready for it.
“IKI deems that the government’s ambition to implement the B40 program in 2021 is not entirely right. This will give rise to the image that the government is rushing it and does not consider the readiness of the infrastructure and consumers,” the company said in its latest IKI Indonesian Palm Oil Report.
The company’s report said that the implementation of the B30 program since the beginning of the year, has continued to face challenges such as the problem of inadequate transportation, limited storage capacity or the still limited biodiesel production capacity.
The government has already begun trial tests on the B40 and is targetint to begin implementing the B40 program in 2021. The program is in line with the government’s drive to boost domestic absorption of Crude Palm Oil (CPO) to reduce its dependency on exports of the commodity in a fluctuating global market.
The B40 mandatory program is estimated to push domestic demand for biodiesel from 9.6 million kiloliters this year to 15.9 million kiloliters.
IKI also said that what needed to be studied was the ability of the Oil Palm Plantation Fund Management Agency (BPDPKS) in providing incentives for the B30 program.
“The rough calculation for the incentives for B30 stands at Rp19 trillion. This incentive amount is really huge compared to the current income of BPDPKS and its remaining balance which stands at around Rp 18 trillion,” IKI said in the report.
The fund managed by BPDPKS is gathered from a levy imposed on CPO exports and its amount is pegged to the prevailing CPO price. In 2019, the levy had even to be dropped because CPO prices were below the bottom ceiling price of $570 per ton.
“IKI does not yet see any step envisaged by BPDPKS to anticipate the large amount of biodiesel incentives for the B30 program or the B40 program which is planned to become effective in 2021,” the IKI report said.
On the other hand, BPDKS funds is not only to pay for biodiesel incentives, but also for other programs such as the oil palm replanting program, researches, the development of human resources and palm oil promotions.
Although it recognizes that the incentives for biodiesel producers were important, IKI also deemed that the incentive scheme should be modified. “ The provision of incentives in the future, especially for the biodiesel program, should be at the maximum when the difference between the diesel oil market index price and that of biodiesel is too wide,” it said,
IKI also deemed that the levy system needed to be evaluated to encourage higher higher revenues for BPDPKS. IKI aired its support for an ongoing discourse about dropping the Export Duty and instead turn the export levy into a progressive tariff. So far the export duty goes into the state coffers and not into the Oil Palm Plantation fund.
IKI recommended that the implementation of the B40 program be only made effective after the supporting infrastructure was ready and the BPDPKS had an improved strategy for the provision of the biodiesel incentives.
“Under the current conditions, IKI is recommending that the implementation of the B40 program should ideally be in 2023, or three years after the implementation of the B30 program,” IKI said in the report.